Question

what is the rationale behind a tradable emission allowance scheme?
a. to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance
b. to raise revenue for the government through the sale of emission permits and at the same time set an emissions target
c. to create a market for externalities: the scheme brings together buyers and sellers of marketable permits
d. to discipline polluting firms by specifying the maximum amount of emissions allowed and giving them permits to pollute up to their allowance

Explanation:

A tradable - emission allowance scheme aims to create economic incentives for firms to reduce pollution. By making firms pay for the right to pollute beyond their specified allowance, it encourages them to find less - costly alternatives for pollution reduction. While revenue generation and creating a market for externalities are aspects, the main goal is to incentivize firms to cut pollution costs. Disciplining firms is part of it but not the core rationale.

Answer:

A. to provide firms with the incentive to consider less costly alternatives to pollution reduction by making firms pay for the right to pollute beyond their specified allowance